Sunak casts a tax shadow: Treasury’s raid on energy threatens investment in the North Sea and renewable projects, says ALEX BRUMMER
The last thing the country needs is yet another tax coming so soon as it does after the April imposition of the NHS and Social Care hike in national insurance, which affects every business and employee in the country.
Yet that is precisely what Rishi Sunak has done with the infliction of a whopping 25 per cent surcharge on the ‘extraordinary’ profits being made by oil and gas companies in an effort to raise £5billion extra of revenues.
In the context of the cash flows currently being achieved by Britain’s oil majors, this might seem like a flea bite.
Gushing profits: Shell notched up £7.4bn or so of profits in the first quarter and BP some £5bn. But BP ended up with a £16.3bn loss after it exited from Moscow-controlled Rosneft
After all, Shell notched up £7.4billion or so of profits in the first quarter and BP some £5billion.
But it is also worth noting that BP ended up with a £16.3billion loss after it exited from Moscow-controlled Rosneft and wrote down its Russian operations.
The shares of BP and Shell have shrugged off Sunak’s tax raid. The blow has been softened by a promise of a super deduction for new investment, which on paper will provide tax relief of 91.25 per cent.
That should encourage further North Sea drilling as well as major new renewable projects such as hydrogen plants on Teesside.
The Government makes much of the fact that even after the surcharge, taxes on explorers in Norway – from where we buy much of our gas – will be higher.
It may be easy for the UK majors such as Shell and BP to ride out the new levy, but the bigger worry post-Brexit is the impact it has on inward investment in the North Sea and on renewable projects.
One of the big factors favoured by overseas investors is certainty about the tax regime.
By constantly moving the goalposts, the Treasury risks driving investment away to locations where future returns on new projects can be relied upon, even if the headline tax rate is higher.
In many ways, the Chancellor’s threat to impose a future tax on the electricity suppliers is even more worrying, causing share prices to slump. Threatening a future tax is damaging to shareholders, dividends and investment.
How disturbing it would be, for instance, if Scottish & Southern Energy (SSE) were to push back on its ambitious £24billion renewable plans. The Treasury is playing with fire.
Barely a day passes without some audit disgrace. KPMG is once again in the frame, this time over its failure to notice bribery payments by aero-engine giant Rolls-Royce.
Doubtless accounting enforcers may at some point catch up with Glencore after the commodity giant owned up to bribery and corruption in seven African countries.
Meanwhile, PwC has found itself at the vortex of a dispute over the audit of Martin Sorrell’s S4 Capital.
Given the urgency of the issue of audit reform, one might have thought it deserved more prominence in the Government’s legislative programme than a background note to the Queen’s Speech.
In spite of three high-profile studies, the shape of the reforms is still in doubt largely because of push back by the all-powerful audit lobby.
It is all but decided that the new regulator the Audit, Reporting and Governance Authority proposed by Lord Kingman way back in 2018, will get the go ahead.
But Business Secretary Kwasi Kwarteng is caught in the middle of a battle royal over the future shape of the profession.
Kwarteng, with clear support from EY – which is to carve out its audit practice –favours a formal split with the burgeoning consulting arms of the big firms, hived off as separate companies, ending conflicts of interest which have bedevilled the profession.
There has been heavy lobbying by much of the profession for a less dramatic separation. This is hardly surprising given the huge partner incomes generated by consulting. Other firms must be encouraged, if not forced, to follow the EY lead.
It is essential if the credibility of the profession is to be shored up.
When it comes to potential overseas takeovers, the Government is showing steel.
The decision to use new powers under the National Security and Investment Act to probe telecoms billionaire Patrick Drahi’s 18 per cent stake in BT has caused a sharp intake of breath.
Not least at BT itself where chief executive Philip Jansen may have nurtured hopes of using the Drahi firepower to speed up change.
Kwasi Kwarteng is taking no prisoners.